ConocoPhillips still mum on details of split, but expects to name CEOs of new companies by year end

By BRETT CLANTON, HOUSTON CHRONICLE

Updated 12:01 pm, Thursday, July 28, 2011

ConocoPhillips' recently announced plan to spin off its refining unit will be a "transformational event" for the Houston oil giant, but many key details of the split are still being worked out, a top executive said Wednesday as the company released its quarterly earnings.

Those include everything from determining if joint-venture arrangements will be affected by the split to selection of new CEOs of the two newly created companies.

"We have some good ideas about how we anticipate things will come out, but there's just work that has to be done," ConocoPhillips' chief financial officer, Jeff Sheets, said in an interview, adding that the company expects to provide more specifics about the plan in September.

The word comes after ConocoPhillips said on July 14 it will make two separate publicly traded companies out of its oil and gas exploration and production unit and refining arm. ConocoPhillips, the nation's third-largest oil company by market value behind Exxon Mobil Corp. and Chevron Corp., has framed the separation as part of an ongoing effort to increase shareholder value.

But analysts have questioned the ability of ConocoPhillips' oil and gas production business to compete with higher-growth independent oil and gas companies such as Anadarko Petroleum Corp., Chesapeake Energy and Apache Corp.

As a stand-alone entity, it also will not have the benefit of the refining arm's substantial cash flows. The refining business, meanwhile, will be more exposed to the historically brutal ups and downs of that industry, without the buffer of a big upstream oil and gas business.

On Wednesday, the company's stock traded below where it was prior to the announcement, suggesting investors are still weighing the idea of a split. Shares fell 48 cents to $73.13 despite a better-than-expected quarterly earnings report.

But Brian Youngberg, industry analyst with Edward Jones, said he believes while the short-term reaction may be lukewarm, "over time it will prove to be a good decision."

Sheets, in a conference call to discuss the company's second-quarter results, also sought to reassure analysts that the two companies were being set up to have ample financial flexibility to pursue individual growth plans, even as he declined to answer basic questions from analysts about who will lead the companies and what assets each will contain.

CononoPhillips does plan to name CEOs of the two companies before the end of the year, he said. James Mulva, the current CEO, plans to retire once the separation is complete, leaving open the top job at ConocoPhillips and the new refining company.

In October, ConocoPhillips hired two outside executives that had been viewed as possible contenders for Mulva's job.

They are Alan Hirshberg, formerly vice president of worldwide deepwater and Africa projects for Exxon Mobil, who joined as senior vice president for planning and strategy, and Greg Garland, formerly president and chief executive officer of Chevron Phillips Chemical Co., who came to ConocoPhillips as senior vice president for exploration and production.

Amid a broader management shake-up, two other executives were elevated to more senior posts. Sheets, the former senior vice president for commercial and planning and strategy, became senior vice president for finance and chief financial officer.

And Willie C.W. Chiang, senior vice president for refining, marketing and transportation, also was given responsibility for the company's commercial business activities.

"I think we have a good breadth of CEO candidates and we're working that process to get those named before the end of the year," Sheets said.

The update came the same day ConocoPhillips reported an 18 percent decline in second-quarter earnings to $3.4 billion, down from $4.16 billion in the same period a year ago when asset sales boosted results. Revenue climbed 34 percent to $67 billion. Excluding special items, ConocoPhillips said it earned $3.4 billion, beating its $2.5 billion in adjusted earnings a year ago, as well as Wall Street expectations. "I thought it was a pretty good result," said Phil Weiss, analyst with Argus Research.

Higher oil prices and improved results across all the company's divisions helped overcome a 90,000-barrel-per-day decline in oil and gas production, to 1.64 million barrels of oil equivalent per day.

Production slipped amid outages in war-torn Libya and after the company sold oil and gas assets, including its 20 percent stake in Russia's Lukoil.

ConocoPhillips, which sold $7 billion in assets last year, has plans to sell up to $10 billion more by the end of next year as it pursues a strategy Mulva has described as "shrinking to grow."

Sheets said Wednesday the plan remains on track.

He also said the company is stepping up onshore activity in North America.

ConocoPhillips this year has added 340,000 acres of prospective oil and gas fields in the United States and Canada and will boost capital spending by $500 million next year as it adds rigs in North Dakota's Bakken Shale and North Texas' Barnett Shale, Sheets said.

The company, which expects to spend $13.5 billion on drilling and other oil and gas projects in 2011, has said it may raise its global capital budget next year to between $14 billion and $15 billion.